Drive away the best car finance deals

Buying a car is the usually the second most costly purchase a person makes during their life, however too many drivers fail to get the most competitive rates for car finance.

While most prospective buyers will spend an average of three months choosing a car by studying magazines, visiting showrooms and taking test drives, research from What Car? magazine suggests that many will give no thought at all to getting the best car finance deal. Too many consumers get roped in to showroom deals because they are offered a big discount on the car. But the likelihood is you could probably get that discount anyway if you bargained hard enough.

Thousands of drivers waste money by making more fuss about colour and style than they do about running costs and reliability. Many car showrooms offer uncompetitive rates of interest on finance packages, and accepting the finance deal offered in showrooms, rather a low rate personal loan, can cost motorists hundreds of pounds. It's important to shop around, on the car itself, as well as the finance package and insurance.

Even if you have been refused finance elsewhere or have a bad credit rating, there are specialist car credit companies who can assist you.

The best way to purchase a new car is usually with cash, but most people need to borrow at least part of the purchase price. There are three main ways to finance your car purchase. Each has positives and negatives, so its worth giving them each careful consideration before proceeding.

Hire Purchase
Car dealers are often keen to sign customers up to hire-purchase agreements as they often receive hefty commission payments for every finance customer. Hire purchase finance is effectively a loan which is secured on your vehicle, and which is paid back in monthly instalments over a set number of years.

Hire purchase deals available from the showroom tend to be a mixed bag. Quite often you'll find some of the worst and some of the best car finance deals. For example, if you buy a Ford Focus 2.0 Climate from Perry's, one of the UK's largest independent car dealers, you'll be offered a typical APR of 14.4% for a five-year loan. After you've paid a deposit of 1,000 up front, you'll end up paying back nearly 17,000 for a loan of 12,300 which is 3,060 more than if you financed the purchase with one of the market leading personal loans. (figures correct 4th March 2006).

However some good interest free deals can be found. For example, Vauxhall are offering 0% for up to four-years on many of their cars at the moment . When the 0% period comes to an end, the company still boasts regular finance deals at 5.5% a year, which compares favourably with anything you'll find in the personal loan market. (figures correct 4th March 2006).

Personal Contract Purchase(PCP)
Contract plans, on offer from most car dealers, are worth considering. You put down a deposit, make monthly payments and at the end of the plan you can pay the final balance to keep the car, or hand it back and switch to a new plan on another new vehicle. This means you can change car every three years or so, but check the small print carefully. Some agreements limit mileage, stipulate service frequency and tie you to a particular insurance package.

Personal Loans
Personal loans tend to provide the cheapest method of financing the purchase of a new car. Increased competition in recent years has seen interest rates fall and the advantage of using a personal loan to buy a car is that it is unsecured, so you don't have to pay off your loan if you decide to sell your car early.

Use the comparison facility above to see who is offering the best rates.